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UK current account and Q3 GDP preview: What to expect of GBP/USD?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 23, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - The GBP/USD has been on a seven day losing streak as traders price-in a growing divergence between the Fed and the Bank of England. The immediate focus is on the UK Q3 current account deficit and GDP figure.

    Worsening current account deficit is a concern

    The deficit is expected to have widened to GBP 21.50 billion in Q3. The BOE members, including governor Carney have on numerous occasions voiced concerns regarding the trade deficit, however, the markets have remained surprisingly ignorant to the deficit issue.

    The current account to GDP has hit record lows in the last three years and may drop further this year as well. The trade deficit with the EU and non-EU nations is on the rise. UK’ days as net exporter of oil are far behind. There is a sizeable deficit on visible trade – manufactured goods, raw materials, oil and food. The deficit on investment is also bigger than the one on goods and services.

    Consequently, an uptick in the current account deficit could be enough to keep the Sterling under pressure. Of late, the issue has been garnering attention from organizations like the British Chamber of Commerce (BCC).

    Meanwhile, other data is likely to leave the Q3 growth rate unchanged at 2.3% y/y and 0.5% m/m. The figure could turn out to be a non-event unless it is a significant upward/downward revision.

    GBP/USD Technical Levels

    At 1.4850, the pair faces immediate resistance at 1.4865 (Dec 17 low)-1.4895 (Dec 2 low). A break higher could see the pair rise to 1.4950 (Dec 18 high). Such a move is likely if the current account deficit rises less than expected and/or the UK GDP is revised higher. On the other hand, a break below the immediate support at 1.4805 (previous day’s low) would open doors for a drop to 1.4739 (Apr 1 low). A break lower towards 1.4635 (Mar 18 low) could be seen if the UK GDP is revised lower, while the current account deficit spikes more than expected.
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